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Exercise 4-8 (20 minutes)
1. The estimated total manufacturing overhead cost is computed as
follows:
Y = $750,000 + $4.00 per MH × 150,000 MHs
Estimated fixed manufacturing overhead ................
$ 750,000
Estimated variable manufacturing overhead
$4.00 per MH × 150,000 MHs ..............................
600,000
Estimated total manufacturing overhead cost ..........
$1,350,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead ........
$1,350,000
÷ Estimated total machine-hours (MHs) ........
150,000
MHs
= Predetermined overhead rate ....................
$9.00
per MH
2. Total manufacturing cost assigned to Job 500:
Direct materials ................................
$350
Direct labor ......................................
230
Manufacturing overhead applied
$9.00 per MH × 30 MHs .................
270
Total manufacturing cost ...................
$850
3. Computing underapplied/overapplied overhead:
Actual manufacturing overhead (a) .......
$1,325,000
Actual machine-hours ...........................
147,000
× Predetermined overhead rate ............
$9.00
= Manufacturing overhead applied (b) ..
$1,323,000
Underapplied overhead (a) – (b) ...........
$ 2,000
Manufacturing overhead underapplied ...
$2,000
The increase cost of goods by $2,000 would decrease net operating
income by $2,000.
